In the recent case of Daniels and Tate v Lloyds Bank, the High Court considered whether Lloyds had wrongfully changed its Long Term Incentive Plan (LTIP). This case involved two senior directors who participated in the Bank’s LTIP. The awards under the LTIP vested at the end of a three year period subject to the remuneration committee concluding that the LTIP performance conditions had been satisfied.
In 2011, the UK Corporate Governance Code (the Code) made it mandatory for a number of financial organisations including Lloyds Bank to include provisions in LTIPs so that unvested awards could be reduced or withheld in certain circumstances. These are known as malus clauses.
Shareholder approval was not required for minor amendments to Lloyds’s LTIP rules if the purpose of the amendments was to comply with legislation. In February 2012, following the changes introduced by the Code, Lloyds amended its existing LTIP plan to include a malus clause without shareholder approval. The malus clause allowed the shares under the LTIP to be reduced or withdrawn at the discretion of the remuneration committee.
In March 2012, Lloyds applied the malus clause and decided that the LTIP shares would not be transferred to the claimant employees. Daniels was owed £1.35M in shares, Tate £0.9M. Importantly, the Board of Directors decided that the malus clause applied after the remuneration committee had already determined that the awards under the same LTIP would vest in full.